Market Recap: Bearish Bets and Volume Concerns



The grain and oilseed market started the month of November the opposite of how it ended October, as the market dropped lower on the U.S. harvest catching up to its historical average pace and a stronger U.S. dollar (which can help Canadian exports, hence basis in Western Canada narrowing recently).

Lack of consistent rail service was just one of the catalysts that helped grain prices rebound over the month of October. Of significance, soy meal was up over 30% for the month , followed by corn up 17.2%, canola up 14.4%, soybeans +13.4%, and Minneapolis (HRS) wheat up 8% month-over-month. Keep in mind that the USDA’s November WASDE report comes out on Monday, November 10th , and early indications are that the numbers will generally be unchanged from the October report, if not more bearish.

This despite strong export numbers continuing to support soy meal and soybeans but the real question is whether or not the increased demand will be reflected in/offset higher soybean yields in Monday’s WASDE report. As such, market participants may look to square their positions before end of the day/the week ahead of Monday morning’s report. The US Dollar hit a 4.5 year-high against other currencies this morning ahead of a US jobs report that showed less jobs created in October than the market was expecting, yet somehow the unemployment rate fell from 5.94% to 5.76%. “How does this happen?” you ask? The U.S. labour force participation rate (the sum of people employed or actively looking for work) remains low at 62.8%, meaning that the U.S. has the smallest possible workforce since 1978 (proportional to the size of the population). Nonetheless, a lower unemployment rate indicates a stronger economy, the US Federal Reserve may be more inclined to raise interest rates sometime in the next 12 months (likely, the UK will raise theirs first, followed by either the EU/US thereafter).

Speaking of fundamental changes, with demand for more vegetable crops near cities and irrigation resources deteriorating, corn production might have hit its breaking point in China as dry weather will see a decrease in output of the coarse grain for the first time in five years. SGS, the grain inspection says corn production will fall 3.6% this year to 210.6 million tonnes (USDA is at 271 million tonnes) and given the increasing use of corn for feed thanks increasing demand for feed in the People’s Republic, the USDA expects China to be the top corn importer in another 5 years.

The U.N.’s Food & Agriculture Organization says that despite a small downgrade in overall production this year, world grain stocks will be at their highest in 15 years by the end of the 2014/15 marketing year, climbing eight per cent from last year to 624.7 million tonnes! This assessment was backed by various industry players and analysts last week at Cereals North America conference in Winnipeg. One of the presenters at the conference from Climate Impact says that some areas around the world may see drier conditions over the next two-to-three years, which would obviously help prices climb back up. One region that may be in this phase is Australia, as the region continues to face a dry spell ahead of its harvest. That being said, the effects/harshness of a drier period somewhere are completely unknown so if you’re hoping for it to happen, I wouldn’t recommend betting the farm on it.

According to the independent, private company overseeing grain transportation in Canada, the same sort of gong show that took place on the rails last winter is unlikely to be repeated. Quorum Corporation say that the federal shipping mandates (which are set to expire at the end of the month) have helped pushed grain movement well above the five-year average but there could be some issues moving forward as quality variability of this year’s crop has forced C.N. & C.P. to be more “precise” with their operations (Hear directly from Mark Hemmes here)

Quorom expects that as more elevators blend grain throughout the year, the efficiency of the system may decline. Outside of the elevators getting their cars, producer car service continues to lag behind with over 11,000 producer cars still outstanding. Simply put, C.N. & C.P. are seemingly focusing on larger orders and those routes with faster turnaround times (an argument we’ve been making for months). All this information in mind, if the message hasn’t been clear enough, Canada is possibly losing its position a global leader because of logistical problems last year and the quality issue s this year. Buzz is growing that Canadian shipments have been underweight, have uneven protein, and execution of movement time frames have been inconsistent. Whether or not this is happening for other buyers too, the question becomes do we hope that buyers will remain “going Canadian” or are we willing to step up, go to these buyers (both publicly and privately) and assure them they have a reliable supplier.

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